John's Blog 1-18-12

Dear Friends,

With the New Year comes tempered optimism about the U.S. economy and its effect on the supply chain industry. Modest growth in economic indicators continues, and consumer confidence is surging. The tempering influence comes from a series of major “unknowns.” No one can accurately predict what will happen in Europe as they continue to struggle with their deficits. Additional major questions hang in the air regarding trends in manufacturing and exports in China, and the November elections here at home.

Barring any Black Swan events I believe that we will continue to see slow growth in the U.S. economy, at 2+% GDP. Consumers clearly are tired of the gloom and doom and are gaining optimism – more optimism, it seems, than the modest growth in key indicators would suggest. The evidence is in the retail sales numbers reflecting what consumers spent or ordered through e-commerce sites in December. The result is the biggest retail sales year in history last year, and the National Retail Federation is predicting another record, with sales growth of 3.4% in 2012.

Employment is improving – slowly – with ADP reporting that nonfarm private business jobs increased by 325,000 from November to December on a seasonally adjusted basis. ADP says further that the increase in December was the largest monthly gain since December 2010.

Manufacturing expanded, with industrial production up 0.4% in December according to the Federal Reserve. The metric used to describe plant capacity utilization was also up in December, moving to 78.1 from 77.8 in the previous month.

The Institute for Supply Management released their PM Index, which supports the notion that manufacturing continues to grow. A December reading of 53.9 is the second straight month of improvement. Any reading over 50 on that index indicates expansion and December marked the 29^th straight month on the growth side of 50.

With the robust retail sales one should expect manufacturing to continue to improve as restocking takes place.

In transportation, expect truckers and railroads to continue to do well, as drivers demand more money and the railroads settle their union contracts. In the end, expect continued upward pricing pressure as capacity remains tight.

Ocean and air cargo will continue to suffer financially as ocean freight fights over-capacity and lack of volume in air cargo.

With federal regulators keeping the 11-hour driving limit for truckers, expect a fight over the restart rule. Currently drivers must rest for 34 hours after a workweek. As now ruled, starting in July 2013, the 34 hours must include two rest periods from 1 a.m. to 5 a.m. In a move that will further impact truckload carrier capacity, the new provisions have the effect of limiting drivers to 70 hours of work within a seven-day period. The previous limit was 82 hours, so this is a real loss of productivity.

At Wagner we are excited about the New Year. We have a great team providing high-tech/high-touch service to a roster of first-rate clients, and several exciting projects in our pipeline.

We are now 100% enabled with RedPrairie warehouse management technology across our entire distribution center network. To support our growing transportation business, we are now implementing our new Mercury Gate transportation management technology. The system automates multiple touch points within a transportation transaction, boosting accuracy and timeliness.

As you think about your supply chain in 2012 feel free to reach out to me with your challenges.  As we say at Wagner, Bring it!

Have a great day!

John Wagner Jr

John’s Blog 11-28-11

Dear Friends,

It would make sense then that consumers would pull out their collective wallets and buy.

And buy they did, as a record 226 million shoppers hit the malls and websites for a long weekend of splurging on everything from electronics to apparel. The National Retail Federation said that the average holiday shopper spent $398.62, up from $365.54 in 2010.

Cyber Monday was just as hot, with online sales up 33% over 2010’s $1.03 billion. The average online order value was $198.26, up from last years $193.24. Notable was the expanded use of mobile devices, as orders placed via iPads and smart phones accounted for 6.6% of all web orders on Monday, up from 2.3% for Cyber Monday 2010.

In a “normal” economy, the consumer confidence level is at 90. With this kind of activity at a confidence level of 56, it makes one wonder what the holiday sales numbers would be like under normal conditions.

All of this good activity should translate to better GDP numbers. Earlier, the third quarter gross domestic product annual growth rate was revised down to 2.0. From what I am seeing it is possible that the fourth quarter may grow at 3.0. 

The employment picture is already looking brighter, as the unemployment rate fell to a 2-1/2-year low of 8.6% in November.

The Commerce Department said that new orders for manufactured goods fell 0.7% in October and shipments were up 1.3% while inventories were up 0.5%. Manufacturing continues to find its balance in this slow-growth situation, and is helped by the weak dollar driving export growth.

Still, the Federal Reserve Bank said that by their measure, industrial production increased by 0.7% in October, with manufacturers’ capacity utilization rising to 77.8%, the highest level since July 2008. 

Manufacturing is 1/8^th of the U.S. economy and consumer spending is 70%+, so these trends are encouraging.  When coupled with the consumer price index falling 0.1% in October calming inflation fears, the economy continues its slow climb forward.

The American Trucking Associations said that its October seasonally adjusted For-Hire Tonnage index increased 0.5% and was up 5.7% for the year. The question is, will retailers reorder and keep their shelves stocked? Or will they play it safe and tell customers, “When it’s gone, it’s gone”? These restocking decisions will drive the trucking numbers in December and in the gift card shopping season in January.  Welcome to the new normal of lean inventories.

Railroads continue to see good volume and intermodal shipments are gaining as motor carriers have a hard time finding drivers. The biggest threat facing the railroads, and the national economy, had been the threat of a nationwide strike. Two of the last three unions still wrangling with the railroads reached an agreement Dec. 2, and the third agreed to extend talks through Feb. 8, averting a holiday-season rail strike that could have cost the U.S. economy an estimated $2 billion a day.

UPS released its published rates for 2012 and they include a 4.9% net increase for UPS Ground and UPS Air Services. U.S. originated shipments for international destinations are included as well.

UPS Next Day and 2^nd Day Air Freight rates on shipments between the U.S., Canada and Puerto Rico will increase 5.9%. UPS 3-Day rates are unchanged.

At Wagner we have signed a letter of agreement with Mercury Gate and will be implementing this powerful transportation management system in the coming month. We are excited about adding this great tool as we seek best-in-class technology for all Wagner service products.

As you consider your distribution planning for 2012, feel free to reach out to Wagner with your supply chain challenges.  As our motto says, Bring it!

Have a great day!

John Wagner Jr.

John’s Blog 11-8-11

Dear Friends,

The U.S. economy appears to be holding its own in the slow but steady march to recovery, shrugging off the Greek drama in the Eurozone and the rumbles about Italian bond problems. Here is what is going right:

Weekly applications for unemployment benefits fell to a seasonally adjusted 390,000 for the week ending Nov. 5, according to the Labor Department, signaling fewer job layoffs, while the four-week average of new claims fell to the lowest level since April. Meanwhile, productivity gains continued and the GDP grew 2.5% in the 3^rd quarter on good export numbers.

Employment continues to lag, but at least we are moving in the right direction. The Labor Department also reported that 80,000 jobs were added in October, causing the unemployment rate to drop very slightly to 9 percent from 9.1 percent. The ranks of the officially unemployed now stand at 13.9 million people. The unofficial estimate of unemployed/underemployed is about 25 million. We really need to add 300,000 jobs a month to make a serious dent in unemployment, so while this is a very small improvement, I will take small growth over a decline.

Now, we wait and see how the holiday retail sales develop. Thin inventories and early discounting will make for an interesting season.

In the world of logistical services, steamship lines are taking a serious hit as trans-pacific rates hit a 21-month low. The spot rate for a 40’ equivalent container from Hong Kong to Los Angeles dropped below $1,500 to $1,486. Since the end of August the spot rate index has fallen 20%, causing the steamship lines to cut service and reduce ships. K Line, MOL, NYK, NOL, and others have lost hundreds of millions of dollars so far this year.

LTL trucking companies have recovered somewhat due to better volume and price increases that have stuck. UPS reported a 15% increase in revenue in its LTL unit and a 3^rd quarter profit of $1.04 billion in net profit. ODFL likewise reported a 25% increase in LTL freight revenue with net profit up 58% year over year to $38.6 million in the same quarter.

Also impacting the over-the-road trucking business is the pending ruling on the hours of service regulations by the FMCSA . The next status report is due to be released on November 28^th. It is hard for carriers to plan not knowing how many hours their drivers are going to be allowed to drive each day. A reduction in the HOS will result in an even deeper loss of truckload capacity.

The Intermodal Association of North America’s quarterly Intermodal Market Trends and Statistics report indicates domestic container shipments bounced up 9% year over year.  Trailer volume dropped a little, down 0.8% against the previous year. International container volume fell 2.6%, reflecting weak international container traffic.

There was a good article in Industry Week magazine about how to optimize your supply chain. One of the key points was to focus on one’s core strengths and outsource the rest.  The trend for many years has been for companies to do just that, outsourcing transportation and distribution center operations in particular.

Companies heavily invested in real estate, or with long-term leases to manage, can still benefit from outsourcing opportunities. At Wagner, we have several partnership arrangements with clients in which we have been brought in to manage company-owned or leased distribution center facilities. These partnerships leverage our experience, bench strength, and perhaps most importantly, our technology to bring maximum efficiency to company-owned space. In our experience, the key to success for these partnerships is a collaborative approach with clearly expressed goals so everyone knows what success looks like.

Wagner is currently engaged in several of these operations, from half-million-square-foot facilities down to 100,000-square-foot operations. Our clients appreciate the value Wagner brings to the table with our RedPrairie DLX suite of software and our deep experience in its use and deployment.

Should you be planning any changes in your distribution center network in 2012 please reach out to Wagner for a conversation. Have a challenge? Bring it!

Have a great day!

John Wagner Jr.

John’s Blog 10-25-11

Dear Friends,

The economy continues its slow but steady recovery. The dreaded double dip back into recession is looking less and less likely every day.

Positive news is there if one will only look. Yes, we still have problems with unemployment and in the housing sector, along with an economic mess in Europe that affects us. But we are getting better. The one lagging indicator is consumer confidence, but confident or not, people are still spending.

The Commerce Department says that retail sales were up 1.1% in September for the largest gain since February. Retailers are reporting sales are ahead of last year at this time.

While it is clear that we have a long way to go to fixing this economy, small improvements are happening monthly; at least we’re heading in the right direction. The Department of Labor reports better jobs numbers in September with a net gain in total payrolls of 103,000. The August and July numbers were revised upwards for a combined net gain of 99,000 jobs.

Truck tonnage was up in August by 5.2% according to the American Trucking Association, and the Cass Freight Shipments Index increased 5% in September from August. Year over year the Cass September index grew 7.5%.  This is the highest reading for the month of September in the last three years.  Morgan Keegan reports that the dry van load to truck ratio showed significant improvement in September as well.

Trucking companies are expanding and upgrading their fleets, which bodes well for both manufacturers and carriers. Companies ordered 23,600 new Class 8 tractors for a 55.5% jump in September from a year ago. Companies also ordered 12,524 new trailers for a 10% year-over-year jump in sales in August.

UPS and FedEx are reporting record profits and gearing up for a busy e-commerce holiday buying season.   FedEx expects to handle 260 million packages for a 12% increase over 2010.  December 12^th is expected to be their busiest day of the year.

The railroads’ total carloads increased 1.8% year over year for the week ending October 13^th, according to the AAR.  In the same period intermodal loadings increased 5.4%.

At Wagner we are wrapping up a strong October and putting together budgets for 2012. We are upgrading technology across the company as we continue to enhance our capabilities in transportation and distribution. We have added an additional industrial engineer to our staff to help us in implementation as we roll out these improvements.

Will you need a state-of-the-art distribution center to meet anticipated demand? What about a better solution within your own company-controlled facility? Additional trucking capacity?   Talk to Wagner and let us help you grow your sales. Bring it!

Have a great day!

John Wagner Jr